incentive for a company to open a branch office and get city- wide net new payroll to be tax- free and i don't think that's the intent of the policy. second, our analysis suggests pretty strongly that twitter is the decisive element in making this advantageous from a fiscal and economic point of view. nevertheless, the exclusion applies to a wider set of area than the one twitter is considering going into. for the green areas i highlighted before, i think a tax cut is reasonable. those are areas i have suggested before. that is for the market failure is and, in combination with the other efforts going on there, that could very much help and have a relatively low cost for the city for those few small properties on market street. similarly, with the tender land properties, there is very little payroll tax thereby including those properties in the district. however, the large properties,

the ones i indicated in blue would likely reoccupy without this. that creates a situation where the city would be getting a tax break for job growth that would happen anyway. yet those properties will still benefit from having twitter in the neighborhood. if those properties were blighted or have high vacancies, that would be another matter. but those are properties that have been occupied recently and there's no reason to think they could not be occupied in the future. we have made a recommendation that the large commercial properties with the exception of the sf mart be excluded from the zone. the other recommendations we have our future policy recommendations. part of the economic concern for this area going forward is what happens to these large vacant

commercial properties. there is a history in this part of san francisco and the city wide of commercial property being left vacant for long periods of time. the property owned the property in hand and is not forcing tenants to pay rent to make payments, it there is not a market force driving the property owner to ensure the property is occupied. there are certain incentives that would make a property owner keep a property of the market in hopes of an area turning around so they could get a higher and tenet later in the future. the city might wish to consider whether that behavior is in its economic interests or its more in its economic interests to ensure a continued occupation of its commercial property and continual occupation of the infrastructure that serve up property. one way to do that is to impose

a parcel tax on commercial properties that are vacant. without speaking to the legal issues involved, i believe that's something that could be done. >my last point -- it does appear in twitter's potential consideration of this policy measure that the issue of twitter stock options, it's a decisive issue because twitter is a valuable company and its stock will likely be very valuable at some point in the future, it would have a nice payroll tax liability. the city may wish to consider a modification to the payroll tax that could reduce the incentive for a company like twitter or any other company that issues stock options that becomes successful from having that

incentive to leave san francisco. the city does have a track record of being good at incubating technology companies but not as great as keeping them in a town where they grow. investing in ways to do that would be good in the future. i'd be happy to take any questions you have. supervisor chu: i know a number of people have put their names on the roster. would you like to wait until after the budget analyst are asked questions now? i think there is a general idea to enter -- to ask questions now. supervisor kim: thank you for your report. i know you spent an immense amount of time putting this together and we appreciate it. my goal in putting this forward is achieve outcomes of want to

see as efficiently as possible. how much real-estate -- how much of the real estate in the aaa building? >> i remember adding up all of the buildings and totaling about 3 million square feet. supervisor kim: is this all property that is vacant or will soon be vacant over the next 18 months or two years? >> that's my understanding. supervisor kim: how many employers we have to attract to fill this space? >> i estimate between 10,012 thousand. supervisor kim: what is the demand for as being able to meet that supply? >> the first bonus you have is on the property owner to find tenants. the function of the commercial rent is to find equilibrium between how much supply there is and what the demand is. the reason we did that analysis

of what does it look like with twitter and what does a look like without twitter and how long does it take to fill up? we do not see great reasons to think that property will fill up quickly without a private sector engine like twitter in that area. we are projecting that without twitter, in 10 years, that area to get to 75% full. there is no math behind that number. that's a gut feeling. supervisor kim: how much commercial real estate do you estimate in the uptown area? >> that hard to estimate and i do not have a commercial reports on that. but i don't think it's anything on the order of the areas i have been highlighting. certainly not as much vacant properties as the areas i have been highlighting. >> there are concerns with incentives coming into this area that commercial rent prices are

going to drive out potential nonprofits in that area. i want to get a sense of what you think based on the supply of space and demand for companies coming in to small businesses. >> i think the near-term dynamics with some much vacant space coming on is going to suppress rents for the foreseeable future. i think the concern you raise is more valid in the long term. if we are roughly right in a twitter, scenario, in five years, you filled out the series with technology companies and it's going to exert rent pressures on some small businesses. it will also create a lot of potential retail business there. the challenge is going to be for those small businesses who are able to capture that business, they will be ahead of the rent and those who are not connected to the retail business that comes into the area, they will be behind. anytime there is a major

economic change the area, a can ripple through all the sectors in the neighborhood. with respect to nonprofits, this is a discussion i had with the comptroller what we were working with this report. to the extent of the city is funding some of these nonprofits, the city made windup observing some of their rent costs as well if there are increases. supervisor mirkarimi: thank you. i was going to wait to ask questions until we heard from everybody but since we have delved into it, if you don't mind, i want to deal with some of the larger assumptions because there is a lot of chatter out there in the public and people are unclear about the concrete benefits and ramifications of a particular transaction such as this. just from the basic point as to why this is being suggested, in

trying to magnetized, tracts, recruit twitter, do we know with clarity that will absolutely that we will -- that we will absolutely land twitter? >> i don't know that absolutely. we think it would take away a lot of the financial incentive for twitter to leave. all it does is put you in a situation where it is not clear immediately what twitter will do. that is my answer. supervisor mirkarimi: it reflects on previous policies like enterprise zones. this is not apples to apples, but i have read as much as i composite lead within the city documents from the comptroller's office and others, there seems to be real ambivalence about enterprise zones as established by the comptroller's analysis.

i want to understand how it is we walk a fine line by not replicating the down sides of an enterprise zone as in the comptroller -- disk controller and previous controllers have articulated are problematic for a city like ours and not make sure we are entrapped by those particular consequences. >> in my view, there are risks and benefits to any tax-based economic development incentives. the benefit this and maybe some companies to change their behavior in the way you would like them to because of the tax change. the cost is all of the businesses who would have changed their behavior would have done what you wanted to do anyway that you are paying for with a tax break. that's why when you are using tax policy and economic development, it is important to tailor it as carefully as you can to only cover those businesses you think will most

affected by the legislation and to exclude those who you think even if they are doing what you want them to do and would do it anyway that you don't cover them by the legislation. supervisor mirkarimi: it makes sense in theory, but based on what has been tested in this theory, want to appreciate how you arrive at conclusions because in certain examples in the past, as stated by the comptroller's reports, enterprise zones have created ambivalence, if not concerned. walk me through the difference. >> i think the way you get at that question in the context of a specific proposal is to say is there something like twitter in the mix? with the legislation affect twitter? if so, would twitter make a difference? those three conditions are filled in this case. if twitter was not in the mix,

we would have a very different report about the fiscal and economic impact. >> it is the company itself, the character and strength of that particular company. >> if it twitter was not moving, it would be very different. what the potential impact of that company is. supervisor mirkarimi: in that case, help me understand why the expansion of the boundaries if ground zero is for the strengthening of mid market so that we are able to in essence try to send in the calvary for trying to do things we have not been able to do in mid market area. how do you know the radius of putting twitter there actually has that wave effect in that expanded boundary? this is also what is simmering out there.

i'm not sure what the policy science is in deciding what the borders are that began to speak to the impact of twitter's satellite effect outside of the market itself. it does not show any direct correlation in the materials i reading. >> there are two things that you analyze. is impacting companies to change their behavior in a certain way. in the analysis of twitter, i think it does. the other side of the equation is, is it minimizing the cost of the city for paying for behavior that would have happened anyway? as written, it does not. that's the basis for our amendment about large commercial properties. frankly, the other properties on market street and tenderloin properties i doubt have a significant city-wide in terms of the payroll at risk. but i think the same goes for

them. i think there's a point where it applies to property on market street in conjunction with what the city is doing, it could help. that's a situation where there is a market failure. the city does not have a lot of tools and it is about catalyzing something. what -- one of the major sources of impact, it is not the green and yellow on the map, is the red and the blue. it is our belief the policy would be best targeted by going after the property that would bring you twitter and let twitter do the work but would make the area attractive and not the payroll cut. supervisor mirkarimi: structuring the credit is amended to six years if i am not mistaken. that has the option of being renewed when sense that comes before the board, correct? >> i'm not aware of that.

i believe would require additional approval. supervisor mirkarimi: maybe when we come back to it, we will get that answer. again on the stock options, rumors afloat about the potential buyout of twitter by google, potentially -- i'm not sure based on reading the financial journals what is real and what is not, but there are strong rumors. how do we position ourselves based on -- since it is your job on forecasting, on those possibilities? >> based on my knowledge of how stock options work in the technology industry, if google or facebook were to purchase twitter, there would be an issue of how stock options that are currently twitter would convert into stock of the

company being purchased. for example, i used to work for a technology company that was purchased by a public technology co. and my options were converted to stock in the publicly traded company. i believe that that point, and i don't want to speak as a tax attorney what i am not one. i believe at that point, the payroll tax issue from the city's point of view is the same. whether or not in the next six years twitter has an event like it goes public or acquired by a company for which its options convert into stock and their employees can exercise it, when employees exercise those stock options, it becomes compensation and therefore a payroll tax issue for the company. twitter, looking forward to whether they get acquired or not, that's an issue for them going forward. there is an issue, and it is hard to forecast, of what

happens if say google buys twitter to the san francisco location? do they say we have a great big campus in mountain view that we want everyone to go to mountain view? your guess is as good as mine on that. i would say this city compete well certainly with san mateo county and santa clara county in terms of rent and taxes and is really the tax issue in the next six years when something will almost certainly happen to the stock options where they will, optional. that's the huge challenge. supervisor mirkarimi: to make sure san francisco is being fortified in being competitive, securing, recruiting benefits without a giveaway so that it does not subvert what the original intent is. at the same time, i think

requiring us to be very clear of what those long-term ramifications are. speaking of which, and this has been floated out there too, does this in some way put us in a defensive posture if other companies should suggest it is a cost-prohibitive city, which is well known, probably one of the most majestic on the planet, cost prohibitive, san francisco. should they get into a similar conundrum on whether to locate or relocate from san francisco, how do not bind ourselves potentially in a similar discussion where all of the sudden we have got to reconcile the hardships of what it means, stay true to our principles and values, and not succumb to the kind of pressures that would put us in that defensive or

reflective position and make it clear that this is a deal that would be treated unlike others. i have not heard a clear answer to this prospect that may happen. >> that's a great question. let me add to the first part before i answer it the second part, which is about the long- term ramifications of this. i do not foresee a scenario in which twitter is receiving some sort of tax windfall from the city. my feeling is based on our analysis, if this legislation is not enacted, it would level the playing field between us and the san mateo county locations and the city loses all of their future payroll tax revenue and future payroll tax -- at current payroll tax revenue. let's say they get bought and relocated. it is still a benefit because

you have two or three years of twitter acting like a magnet. if the legislation is amended, the only risk you are stuck with his one large building that does not have twitter, that has this exclusion and something else goes in there that it's a payroll tax cut that does not have the same economic development impact as twitter. that's the only risk. to your second point, we can tell that businesses are more likely to move out of san francisco than they are from other bay area locations. we know that san francisco's business attack -- san francisco's business tax are higher than anywhere in the bay area. the challenge the city has to have if it does not want to get into a situation of we can only be competitive by being taxed- competitive this to be competitive on other things. for example, we did not just look at rent or taxes in what

is twitter's decision cali look at how easy is it for them to get labor in some detail as opposed to san francisco. there is great transit access and transit is a cheap way to travel. but the way it works in the bay area is it is also a very slow way to travel. so consequently, even though it is well-positioned for in the structure of getting vast numbers of people there, the net is it is no greater advantage than being in a suburban office park in sierra point or on the san bruno mountain. so those are not tax measures that affect san francisco's business competitive the city can work on without getting into a situation of our taxes are higher than $50 per employee and we will never compete. to your point about one business at a time, i think that's an important caution.

it's one of the reasons we are recommending the city take comprehensive look at this issue of stock options and what it does to the payroll tax liability of a successful technology companies. it seems less than optional -- less than optimal that every time a big company threatens to leave to do it big district or small district or any sort of policy measure just because of them. it feels better from a policy point of view to say this is our business tax policy, we are confident in it, we think it makes it competitive given what you get in san francisco, and some people will like it and some people will not. we're comfortable with what ever the outcomes are. supervisor mirkarimi: then why didn't the comptroller's office lead with this particular remedy if what is before us come up with other companies that have left or threaten to leave san francisco or want to come here but not locate? the only time we really have

anything on some similar course is with the biotech industry. with the biotech industry, we incentivize a particular alleviation of credits and yet it's not clear if that nexus shows if biotech did come to san francisco because of that particular alleviation, correct? >> what we know about the biotech tax credit is following the adoption of that tax credit, the city reasonably quickly got a higher share of regional biotech activity that had it passed. disentangling the tax credit from build out at mission bay is challenging to do and that's what our report concluded. frankly, i was aware of this issue of stock options of the payroll tax until i received this legislation and looked into the issue. it has not come up in our

previous economic impact reports and that's the reason why it is a recommendation now. supervisor mirkarimi: on the amenities services, to make this a very attractive package, there have been references made about the need for dedicated muni line or some specialized service, enhanced policing, those services. i think a statement was made and they said that the system does not work in this neighborhood. my response to that is i think the system does not work in a number of neighborhoods in san francisco. i can make the same argument through this level of confusion to resources in those neighborhoods as well. but what is before us is mid market. how do we know that by then giving this kind of special treatment, this upgrade of

services that this is exactly what is really part of the formula that is needed as well? and back to the budget analyst controller, when you come around to it, i did not see anywhere in the analysis and assessment of those services in the financial analysis before us. it certainly was not part of our report of the additional cost and with a budget analyst speak to those costs. >> i think they can speak specifically to the impact here, remember what we're talking about doing is building a vacant office space that already exist. to the extent infrastructure is in place to serve buildings that have been constructed in the past, i would not anticipate there would be a significant new requirement before city operations or infrastructure as a result of filling these

offices if we are talking about developing major new towers that would require major new and the structure, that might feel different. but what we are talking about here is filling vacant space that has existed in the past and will exist tomorrow. supervisor mirkarimi: is a proportional to the office space that is commensurate to the police services? i'm not sure i understand. >> my point is i know we do talk about the incremental service impact of land use decisions that are before you. often, we are quantifying in those cases where we are building out part of the city or building up part of the city that is not currently served by infrastructure. with that density in mind, we talk about this at treasure island and hunters point shipyard where there is not infrastructure designed there to accommodate the expected future

the new development holds. in this case, we're talking about the urban core and talking about filling office space that has existed in the past and presumably for which it the structure in the past was designed to serve. supervisor mirkarimi: feel free to now or later if you like. >> i would like to address the supplemental transportation and police services. in our conversations with twitters to relocate, they expressed concerns are around safety and transportation. we sought to address those concerns by looking at what the city is currently planning on doing in that area regardless of whether or not twitter occupies the building. one is the service restoration from the express bus to the caltrans station to the civic center that was approved completely independent of the

possibilities of that building in december of 2010. that is subject to budgetary appropriation in the budget but it was a service restoration independently approved that we brought to their attention that would probably benefit a great number of their employes that come up to the peninsula by providing service to very close to the sf mart. if twitter or another employer brought thousands of employees to that building, our office would advocate for funding that line because we would see increased use for it. the offer was to extend the existing patrol that and that market and ninth street, one block with existing revenues. we said when you move in and if your tenant improvements are completed, we will work with the police department to expand the existing program by having those foot patrol officers walked one

additional block. we did not anticipate it would have a general fund or any other revenue impact. supervisor mirkarimi: it was also reference to a police substation. >> the police substation has been long in the works. it's completely independent of the tenant and something the community has been desperately seeking to address crime concerns on -- in the neighborhood. the substation -- as supervisor kim is aware, would be located on sixth street. it's a partnership between the police department and funded by the redevelopment agency subject to approval independent of these conversations and would allow police officers working in that neighborhood to not have to return to southern station to perform their police duties. supervisor mirkarimi: as a longtime champion of foot patrols, it's music to my ears, but it is an unneeded assessment